USD/TRY closing in to 6.00 as US-Turkey tensions escalate

• USD/TRY climbs further and surpasses the 5.9300.
• US-Turkey effervescence on S-400 keeps swelling.
• Turkey Current Account deficit came in at $1.33 billion in April.

The Turkish Lira is extending its move lower so far this week and is lifting USD/TRY to fresh tops beyond the 5.9300 handle.

USD/TRY now targets 6.00 on US sanctions fears

The pair has been gathering renewed steam following Tuesday’s lows in the 5.7500 neighbourhood, clinching fresh 2-week peaks beyond 5.9300 the figure earlier today and always on the back of rising US-Turkey tensions.

In fact, frictions between the US and Turkey remain well on the rise after Erdogan’s government could be assessing counter measures in case the White House imposes sanctions against the country following the purchase of the Russian S-400 missile defence system.

In the Turkish calendar, the Current Account deficit widened to $1.33 billion during April, while June’s End Year CPI Forecast is coming up next. In the US docket, Retail Sales will be in the limelight as well as the U-Mich sentiment gauge followed by Industrial and Manufacturing Production figures.

What to look for around TRY

The Turkish Lira keeps depreciating so far this week, opening at the same time a potential test of the psychological 6.00 handle if the selling impulse accelerates. As usual, trade effervescence should remain as key driver in the EM FX space, while frictions between the AKP and its main opposition party in the run up to the municipal elections in Istanbul also emerging as another source for Lira volatility. In the very near term, investors are closely following the developments from the US-Turkey effervescence and probable US sanctions against the country over the purchase of the S-400 missile defence system. On another direction, the independence and credibility of the CBRT should remain under the microscope in response to the omnipresent conflict between the government and the bank’s authorities.

USD/TRY key levels

At the moment the pair is up 0.48% at 5.8957 and faces the immediate hurdle at 5.9326 (high Jun.14) followed by 5.9893 (23.6% Fibo retracement of the 2019 rally) and finally 6.1516 (high May 23). On the downside, a breach of 5.8069 (10-day SMA) would open the door to 5.6560 (low Jun.5) and then 5.6232 (200-day SMA).